Mortgage Loans 101: The Basics Of An FHA Loan
When it comes to mortgage loans, you can get overwhelmed for its many types. Most people think that when you say mortgage loan, there’s just one. But the truth is, there are many types of mortgage loans. If you are a first-time home buyer and you are looking for the best deal, then you better get to know about the most common types of mortgage loans to understand which one is best for you.
We have conventional and government-insured loans. When we say traditional, it is the standard type of mortgage loan. It often requires at least twenty percent down payment. It also has a higher interest rate as compared to government ones. The good thing about this kind of loan is you can get approved quickly.
On the other hand, government-insured loans are often better. They have flexible repayment terms, low-interest rates and low down payment. The downside for this is, it’s not easy to get approved. The application process is often stringent.
One of the most common types of government loans is the Federal Housing Administration (FHA) loan handled by the same department. If you are interested in FHA Loans El Paso, then it is best to get to know the basics about it first to gauge whether it is the one for you or you need to find something else.
What is an FHA Loan?
An FHA loan is a mortgage loan guaranteed by the Federal Housing Authority. It is one of the most popular types among first-time buyers since they offer as low as 3.5 percent down payment. They also accept a credit score for as little as 580. It is way more economical than other types of loans. One of the disadvantages of such an investment is that the borrower needs to pay for mortgage insurance premiums. The purpose of which is to protect the lender in case the borrower’s loan defaults.
What are the Requirements of an FHA Loan?
When it comes to requirements, the FHA loan is one of the few with the most needs. And you would understand why because of how better it is as compared to others. One of the primary requirements for this loan is for you to have a good employment history with the same company for the last two years. You also need to have a valid Social Security Number, which means you should be a US citizen. You also need to be of legal age. In terms of down payment, the money can come from a family member.
Furthermore, your back-end ratio must be less than 43 percent of your gross income. Sometimes, they can be lenient and allow as high as 50 percent, but that is the maximum and is not applicable in all cases. There are many other requirements, but those mentioned are the major ones.
What are the Benefits if an FHA Loan?
One of the best benefits if an FHA loan is the low down payment. It is beneficial for many families who want to purchase a house but couldn’t save for that twenty percent. It also requires lesser credit score, so it is advantageous to those who are fixing their credit or building their loans.